The New Republic

Apple's Tax Hypocrisy

It’s remarkable how quickly the storm of outrage over Apple’s epic tax avoidance has passed over Washington. All it took was for Apple CEO Tim Cook (2011 compensation: $378 million) to share some yuks with senators about their love for his company’s products (“I love Apple. I love Apple,” enthused Claire McCaskill) and to cast Apple’s extreme measures to avoid taxes (paying not a cent on $30 billion in global profits parked in an Irish subsidiary that has as much physical reality as a leprechaun) as a mere matter of subjective perspective: “The way that I look at this is there’s no shifting going on that I see at all,” Cook told John McCain. “I see this differently than you do, I believe.”

There’s one aspect of the Apple tax avoidance that I’m particularly surprised has been allowed to slip unscrutinized. As you’re probably aware, the Silicon Valley giants have been in Washington a lot of late for something other than explaining the postmodern relativism of tax liability: to lobby for immigration reform. They're interested, in particular, in greatly expanding the number of H-1B visas, which Apple, Google, Facebook and the rest of the tech behemoths rely on to hire foreign software engineers. They need to bring these workers over from India, China and elsewhere, the companies say, because there simply aren’t enough qualified native ones being trained here at home. One of the biggest champions of this demand was none other than Steve Jobs, Cook's predecessor, who made the pitch directly to President Obama in 2011. Sometimes, the companies phrase it euphemistically: The lack of H-1B visas, Google’s public policy shop explains, is “preventing tech companies from recruiting some of the world’s brightest minds.” Mark Zuckerberg was slightly more candid in his big Washington Post op-ed, throwing his weight behind immigration reform: “To lead the world in this new economy, we need the most talented and hardest-working people” (you hear that, Middle America?) And sometimes it comes out just plain awkward: “There are simply more smart Indians and Chinese than there are Americans,” Google CEO Eric Schmidt said over the weekend on CNN. (Yes, he is of course literally correct, sample size and all—there are more dumb people over there too!—but still…)

We’ve become so used to hearing our educational system disparaged from all corners that we have insufficiently zeroed in on this part of the Silicon Valley argument. There are many reasons why our schools fall far short of the ideal—students arriving unprepared, bureaucracies constrained by hidebound rules, etc. And one reason is, yes, inadequate resources, more in some parts of the country than others. Which brings us to Apple. From the deeply-reported New York Times story that laid bare its tax avoidance last year:

A mile and a half from Apple's Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple's founders, attended from 1969 to 1974. Because of California's state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008. Now, De Anza faces a budget gap so large that it is confronting a ''death spiral,'' the school's president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state's financial shortfall, which has numerous causes. But the company's tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

''I just don't understand it,'' he said in an interview. ''I'll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete's sake. ''But then they do everything they can to pay as few taxes as possible.''

As that piece reported, Apple not only does its utmost to avoid paying federal taxes in the U.S., but also to minimize its taxes at the state and local level. One favorite trick: Nevada. The Times: “With a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states. Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains. California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.”

If Apple really cares about a shortage of homegrown engineering talent, then it should pay taxes to fund the institutions that could address that problem. Yes, I know. What they've done in seeking out every loophole from Eire to eternity is technically legal. It’s the fault of the governments that allow these loopholes to exist. Everyone does it. But here’s why these rationalizations don’t cut it any more, if they ever did. In taking such an influential role in shaping our new immigration policy, the Silicon Valley giants are offering themselves as having a stake in our country’s common prosperity: To thrive, they are saying, we Americans must fix this immigration morass, by, among other things, making it easier for us to hire labor from abroad. There will be winners and losers, but it will be good for us all in the long run.

The industry’s new aspiration to a kind of town-father, old-fashioned Chamber of Commerce investment in the greater good comes through in George Packer’s terrific new New Yorker dispatch from Silicon Valley. Packer cites the scene of Obama’s 2011 visit to the Valley in Walter Isaacson’s biography of Jobs: Cisco CEO John Chambers “kept pushing [Obama] for a tax holiday on overseas profits that are reinvested in the United States…While Chambers was lobbying Obama, over cod and lentil salad, Zuckerberg turned to Valerie Jarrett, the President’s adviser, and whispered, ‘We should be talking about what’s important to the country. Why is he just talking about what’s good for him?” Packer also quotes Joe Green, a Zuckerberg roommate at Harvard who was not part of the original Facebook team but has since reunited with him to run the new Silicon Valley group, FWD.us, that is pushing immigration reform. “How do we move America into the knowledge economy? And how do we create a voice for the knowledge community that is about the future and not selfish?”

FWD.us has already run into some murky controversies as it tries to navigate the realities of partisan Washington. But the larger question raised by the industry’s new aspiration to playing a constructive role is pretty simple: Isn’t one way to show that you want to be part of the nation’s common good—a “not selfish voice”—to, you know, pay taxes? Or rather, not go completely out of your way to avoid paying them? Yes, companies have a fiduciary responsibility to their shareholders to grow profits. But in their quest to reform immigration laws to their liking, the Valley giants are arguing that there is some sort of commonwealth that will, in the end, benefit our entire bottom line—corporate and national. Why does the same logic not apply at all when it comes to their tax liability? Why can the case not be made to shareholders that it would be good for Apple in the long run if that community college just down the road from the company’s main campus (a campus that is about to be transformed into a $5 billion fortress) were not falling apart? Who knows, it might even produce a homegrown employee one of these days, like that Wozniak guy.